The Reserve Bank of India (RBI) has released a new set of regulations for all lenders—banks, housing finance companies (HFCs), non-banking financial companies (NBFCs), and co-operative banks—who provide loans against gold and silver.
These regulations, the Reserve Bank of India (Lending Against Gold and Silver Collateral) Directions, 2025, will be implemented from April 1, 2026.
This is the first time that RBI has brought regulations on gold and silver loans under a single uniform scheme. The purpose is to safeguard borrowers from exploitative practices, harmonise conditions of the loans, and prevent the possibility of fraud or abuse.
What Can Be Used As Collateral
Under the new rules, only gold and silver jewellery, ornaments, or coins can be used as collateral for taking loans. Gold bars, bullion, or gold-backed financial products, such as gold exchange-traded funds (ETFs) or mutual funds cannot be used as security.
There are also restrictions on the amount of gold or silver that can be mortgaged.
A borrower can pledge up to 1 kg of ornaments in gold and 10 kg in silver ornaments. In the case of coins, the limit is 50 grams for gold and 500 grams for silver.
Clear Rules On Loan Amount And Repayment
The RBI has placed a cap on the amount of loan an individual can avail of depending on the amout of gold or silver pledged.
This is referred to as the loan-to-value (LTV) ratio. For loans of up to Rs 2.50 lakh, the highest LTV is 85 per cent. For loans above this, it falls to 80 per cent or 75 per cent, depending on the size of the loan.
Also, loans with a lump sum repayment (bullet repayment loans) can be availed of only for a period of 12 months. Those loans can be rolled over only after the interest is paid by the borrower.
Standard Process For Valuation And Communication
To prevent confusion or unjust deductions, every lender is now required to use a uniform procedure to verify the purity and weight of the gold or silver. The borrower has to accompany the lender during this process and the lender has to explain the deductions for the stones or other non-metal components. A certificate with all this information has to be handed to the borrower.
Loan contracts should also state all terms clearly, such as auction procedures, repayment schedules, and fees. These have to be provided for in the borrower's choice of language. For borrowers who cannot read, the terms have to be read out in the presence of a witness.
Stronger Protections For Borrowers
The lenders have to keep the pledged gold or silver securely in their own offices. Surprise visits and periodical audits have to be made. The borrowers have to provide permission for surprise verification of the pledged items within the loan tenure.
Significantly, if a lender is late in returning the pledged silver or gold once the loan is paid in full, they have to pay the borrower Rs 5,000 per day of delay. On loss or damage to the collateral, the lender also has to compensate the borrower.
Transparent Auction Rules
If the borrower defaults, the lender has the right to auction the item pawned. But lenders will also need to provide proper notice, both in private and through advertisements in newspapers for the same.
Auctioning has to be conducted fairly, and banks or their parties are not permitted to participate in such auctions. Any excess amount received in the auction has to be returned to the borrower within seven working days.
These reforms have the objective of making the gold and silver loan transaction safer and more transparent for the borrowers, particularly in the rural and semi-urban areas where such loans are prevalent.
